Wish to invest your surplus money for an awesome return on investment? Confused between a piece of land or the ever-popular mutual fund? While shortlisting the options for investment, you come across many instruments such as gold, equities, fixed deposits, national savings schemes, real estate, and mutual funds. While all the instruments have their pros and cons, factors such as return potential, consistency, security, and budget range must govern your decision. Here is a comparative analysis of real estate and mutual funds as investment instruments.
Returns potential
Despite the short-term challenges due to the pandemic, real estate is still considered almost similar to a fixed deposit. On the other hand, a mutual fund investment is way riskier.
While mutual funds expose your money to the equity market, the volatility and risk of losing money are higher. On the other hand, an investment in land is considered safer despite modest returns. The mutual funds have given a return of anywhere between 10-15% over a period of the last 20 years, but it is also true that the prolonged recession and slowdown in the economy can adversely affect the returns. From a longer-term investment perspective, one must prefer real estate over an MF.
Consistent performer
The general perception has been that an investment in real estate remains a consistent performer over the years, and it is not a false notion. Barring a few periods of slowdown, property prices across the cities have skyrocketed. Although the consistency is very much dependent on the factors such as connectivity, physical infrastructure, social amenities, road network, neighbourhoods, planned projects, it is considered safer than a volatile mutual fund/ equity market.
On the other hand, mutual fund investments are exposed to the equity share of different companies. Being a bucket of options, the risk is distributed, and the collective return is good over a long period. Despite this, the risk is always high, and one might lose huge money if not invested intelligently.
Quantum of investment
Both real estate and mutual fund investments are popular investment instruments. However, a key difference between both instruments is the quantum of investment. While an investment in the mutual fund can be started with an amount as low as ₹100 per month, such is not the case with the property market. You must have a significant amount to invest in a property of any type, be it residential or commercial.
The investment in a mutual fund can be increased or decreased with the income potential of the investor, but there is no such ‘top-up’ facility in real estate. A large chunk of money is a must-have.
Risk quotient
Every investor must factor in the aspect of liquidity of the investment instrument. Both mutual funds and real estate starkly differ in terms of liquidity. Although it seems that mutual funds are more liquid, the risk quotient and the market exposure make liquidity a challenge.
However, such is not the case with the property assets. It might take a few months to get a customer and seal the deal, but the value remains intact, and the money cannot vanish overnight, unlike mutual funds. However, it must be noted that people have to sacrifice a fair share of money in brokerage. Investors must also beware of panic selling as it reduces the value of the asset.
Regular monitoring
As real estate investments are physical assets, they might require regular monitoring and vigil. The instances of land grabbing and illegal encroachments have exacerbated the insecurity quotient. Therefore, an investor must weigh in the factor or regular monitoring of real estate assets. Despite this, a land asset is for the long term, and maintenance factors must not deter the investor from buying real estate.
In mutual funds, although physical security is not an issue, a careful choice of funds is a given, and you must invest from only the Securities and Exchange Board of India (SEBI) registered brokers only.
Conclusively, from a long term perspective, real estate and property investments are still preferred and will continue to be favoured by the investors.
The writer is Director, Sheerbulls India Pvt Ltd.
